test 2

Which of the following is equivalent to average total cost?
Fixed cost and variable cost added together and then divided by output.
Marginal cost plus variable cost.
The change in total cost divided by the change in output.
Fixed cost plus variable cost.

Fixed cost and variable cost added together and then divided by output.

When producing jeans, which of the following are not a variable cost in the short run?
Zippers
Denim material
Wages
Rent for the factory

Rent for the factory

In the short run, when output is zero, total costs are zero.
True
False

false

The selection of the short-run rate of output is the:
Marginal decision.
Investment decision.
Production decision.
Industrial decision.

Production decision.

The factors of production include:
Land, labor, capital, and entrepreneurship.
Output in a production function.
Money.
Profit.

Land, labor, capital, and entrepreneurship.

Market structure is determined by:
The number and relative size of firms in an industry.
The equilibrium price in a specific market.
The level of government regulation in a specific market.
Whether or not a firm is able to alter its output.

The number and relative size of firms in an industry.

In making a production decision, a business owner:
Makes a long-run decision about output and revenues.
Decides the short-run rate of output.
Decides whether to enter or exit the market.
Decides whether to buy or lease new plant and equipment.

Decides the short-run rate of output.

If the cost of production rises for all the firms in a perfectly competitive industry:
The marginal cost curve shifts downward.
Each firm will supply less output at any given price.
Total revenue increases.
Total profit increases.

Each firm will supply less output at any given price.

Which of the following market structures has the highest barriers to entry?
Monopolistic competition
Monopoly
Perfect competition
Oligopoly

monopoly

If a perfectly competitive firm produces and sells more output, its _______ will definitely increase.
Total profit
Average total cost
Marginal revenue
Total revenue

totl revenue

In a competitive market, economic losses indicate that:
The barriers to entry are too high.
Consumers want resources to be reallocated.
Additional firms will enter the market.
More of the product should be produced.

Consumers want resources to be reallocated.

An oligopolist may decide to coordinate with others in the industry in order to maximize profits.
True
False

true

Which of the following is not consistent with a monopoly industry?
There is no pressure to reduce costs or improve product quality.
Barriers to entry keep potential competitors out of the market.
Many firms produce identical or similar products.
Production and supplies are constrained.

Many firms produce identical or similar products.

A text NEWSWIRE article about Microsoft reported: “Microsoft mounted a deliberate assault upon entrepreneurial efforts that…could well have prevented the introduction of competition…” This passage suggests that Microsoft was able to erect barriers to entry and behave like:
A monopoly.
A perfectly contestable market.
A perfectly competitive market.
A natural monopoly.

monopoly

Suppose two firms dominate a market and control price and output. This type of market is called:
A monopoly.
An oligopoly.
Monopolistically competitive.
A duopoly.

duopoly

Using Figure 9.1, assume point D represents the optimal mix of output. The market mechanism is likely to produce the mix of output represented by point:
D because the market mechanism is efficient.
C because the market mechanism tends to under produces public goods.
A because full employment can never be reached.
E because the market mechanism tends to under produces private goods.

C because the market mechanism tends to under produces public goods.

Externalities are a type of market failure because:
Goods and services are not distributed fairly.
Third parties bears the costs or benefits of a market activity.
Buyers do not have complete information about the product.
Producers have too much power.

Third parties bears the costs or benefits of a market activity.

When firms have the ability to change the market price of a good or service, the market failure involved is:
Public goods.
Inequities.
Market power.
Externalities.

market power

Income transfers are a government response to the market’s failure to provide an equitable distribution of goods.
True
False

true

The demand curve for an individual monopolist:
Slopes upward to the right.
Is the same as the market demand curve.
Is the same as the marginal revenue curve.
Does not exist.

Is the same as the market demand curve.

In economics, a public good:
Is any good produced by the government.
Cannot be denied to consumers who do not pay.
Has social costs that are lower than private costs.
Is provided in an optimal amount by the market.

Cannot be denied to consumers who do not pay.

A firm can be identified as profitable if the:
Total costs and marginal costs are low.
Sum of total revenue and total costs is high.
Difference between its total revenue and total costs is positive.
Difference between its total revenue and total costs is negative.

Difference between its total revenue and total costs is positive.

If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that:
The marginal product of all four workers is 14.
That after the second worker marginal product declines.
That adding a forth worker will cause total product to decline.
The total product of two workers is 42.

That after the second worker marginal product declines.

Ceteris paribus, the law of diminishing returns states that beyond some point the:
Addition to total utility declines as more units are consumed.
Marginal physical product of a variable input declines as more of it is used.
Output of any good or service increases as more variable input is used.
Return on stocks and bonds diminish as more are purchased.

Marginal physical product of a variable input declines as more of it is used.

Which of the following will always increase as output increases?
Fixed costs
Marginal cost
Average total cost
Total cost

total cost

Which of the following statements concerning the relationship between total product (TP) and marginal physical product (MPP) is not correct?
TP will fall if MPP is falling.
TP is increasing at an increasing rate if MPP is increasing.
TP will fall if MPP is negative.
TP will continue to rise even though MPP is falling but greater than zero.

TP will fall if MPP is falling.

f price equals ATC and equals MC then:
New firms will enter the market.
The firm would be operating at a loss.
Producers will want to increase output.
Economic profits would be zero.

An individual competitive firm:
Has a large advertising budget.
Can alter the market price of the good(s) it produces.
Produces a small portion of output relative to the market.
Can raise its price to increase profit.

Produces a small portion of output relative to the market.

A profit-maximizing competitive firm wants to _____ the rate of output when price _____ marginal cost.
Expand; is less than
Reduce; exceeds
Reduce; equals
Expand; exceeds

Expand; exceeds

Which of the following is characteristic of a perfectly competitive market?
There are low barriers to entry
A few firms dominate the market
Firms are price setters
The market demand curve is flat

There are low barriers to entry

In the perfectly competitive catfish market, the market demand curve is:
Downward sloping.
Vertical.
Flat (horizontal).
The same as the demand curve faced by the firm.

downward sloping

Which of the following is consistent with a competitive market?
Marginal revenue lower than price for each firm
A small number of firms
Exit of small firms when profits are high for large firms
Zero economic profit in the long run

Zero economic profit in the long run

In an oligopoly, one firm controls the entire market.
True
False

false

In Figure 7.1, at the profit maximizing level of output for a monopolist, marginal cost is:
$9.00.
Between $6.00 and $7.00.
$7.00.
$5.00.

5

If you want to fly to Los Angeles, a place most airlines fly in and out of, the airline industry is likely _____, but if you want to fly to a small town in Texas, where only one airline flies, the airline industry is likely _____.
Competitive; monopolistic
Monopolistic; competitive
Monopolistic; oligopolistic
Competitive; duopolistic

Competitive; monopolistic

A patent:
Protects a perfectly competitive firm from competition.
Is a government grant of exclusive ownership of an innovation.
Is an illegal method to protect an innovative idea.
Requires a firm to share its innovations with others.

Is a government grant of exclusive ownership of an innovation.

In monopolistic competition there is more price-setting power than in perfect competition.
True
False

true

Even if society is producing a combination of goods and services on the production possibilities curve, it may not be producing the optimal mix of output.
True
False

true

Which of the following is an economic justification for a policy of laissez-faire?
The efficiency of the market mechanism.
The free-rider dilemma.
The existence of externalities.
Public goods.

The efficiency of the market mechanism.

In economics, a public good:
Allows free riders to benefit from the good.
Is provided in an optimal amount by the market.
Always causes government failure.
Is any good produced by the government.

Allows free riders to benefit from the good.

Market failure implies that a policy of laissez-faire:
Leads the economy to an undesirable point on the production possibilities curve.
Is superior to government intervention.
Leads the economy to a point beyond the production possibilities curve.
Causes government failure.

Leads the economy to an undesirable point on the production possibilities curve.

Other things being equal, if a perfectly competitive firm is forced to switch to a more expensive, nonpolluting production process:
The average cost curve will shift downward.
The profit-maximizing level of output will be increased.
The marginal cost curve will shift downward.
Total profits will decrease.

When the economy experiences high unemployment, there is:
Microeconomic failure.
Macroeconomic failure.
Government waste.
Government failure.

Macroeconomic failure.

Refer to Figure 6.1 for a perfectly competitive firm. If the market price is $46:
There will be economic losses.
The firm should produce 19 units.
There will be economic profits.
Economic profits equal zero.

There will be economic profits.

Refer to Figure 6.2 for a perfectly competitive firm. If price is $10, the firm is:
Maximizing efficiency.
Earning an economic loss.
Earning an economic profit.
In long run equilibrium.

Earning an economic profit.

The most desirable combination of output attainable with available resources, technology and social values is known as the:
Efficient choice of production.
Preferred output choice.
Optimal mix of output.
Economic choice of output.

Optimal mix of output.

Which of the following is not considered to be a source of market power for a firm?
Antitrust laws.
A copyright.
Control of resources.
Efficiencies of large-scale production.

Antitrust laws.

Which of the following is most likely a private good?
Police protection
Highways
Cars
Parks